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France is "paralyzed" and needs urgent reforms to set it back "in motion", Prime Minister Manuel Valls said on Sunday on the eve of a job creation summit, that threatens to be overshadowed by a row between unions and the government.

French President Francois Hollande on Monday kicks off a summit with business leaders aimed at creating half a million vitally-needed jobs in return for lower taxes, but a labour row threatens to mar the event.

The two-day conference aims to tackle record unemployment of 3.38 million people, a key factor behind humiliating election defeats for the Socialists this year.

On the eve of the summit, Prime Minister Manuel Valls spoke of the desperate need to reform a France that was “constrained” and “paralyzed” because of "too many blockages".

“Without reforms, we are threatened by the stalemate. Stalled and thus in decline,” Valls told an audience of Socialist party supporters in the town of Vauvert, southern France. "To not move forward is to begin to lose," he added.

To “set France in motion” it simply needed to reforms Valls said, before accepting that those changes may have some negative side effects that may be hard to take.

(French PM Manuel Valls, Photo: Patrick Kovarick/AFP)

Business leaders in France have long been calling for greater structural reforms to free up the labour market and help make France more competitive.

In May 2013, the Socialist government successfully passed a bill that slightly eased the tight labour laws and made it easier for companies to lay-off workers during hard times. The legislation also increased protection for those workers on short term (CDD) contracts.

“All sections of the agreement are aimed at weakening the position of employees,” said Bernard Thibault, secretary general of the CGT union, at the time.

Nevertheless the bill was heralded by the government as "a great step forward" but since then the president has been under pressure to do more to reduce expensive labour costs in France and make the job market more flexible.

Hollande's government has pledged to cut state spending between 2015-2017 to finance a package of payroll and income tax cuts designed to bolster demand, make companies more competitive and attract investment.

The centrepiece of the strategy is a so-called Responsibility Pact, offering businesses €40 billion ($54 billion) worth of cuts in taxes and social charges, in exchange for a pledge to create some 500,000 jobs.

But unions have threatened a boycott of the round table talks on job creation, accusing the government of failing to make employers keep their end of the bargain.

They are particularly incensed by Prime Minister Manuel Valls delaying a promise of early retirement for people in physically-tough jobs following pressure from Medef, the main employers' union.

Under the new system, people engaged in demanding jobs - working nights, exposed to loud noise or heavy loads or performing repetitive tasks - would gain extra job training or early retirement as compensation.

The so-called "hardship accounts" were supposed to come into force in January 2015 but have now been delayed by a year.

Trade unions described the government backdown on the issue as a "breakdown in labour dialogue."

More broadly, union leaders say talks on the hiring targets have failed to make real progress.

On Sunday, five senior members of the Socialist party urged Hollande to hold employers accountable, saying that Pierre Gattaz, the head of Medef, was "harassing the government."